Non-residents have a house sized problem ahead!
The bill to deny non-residents the principal residence (family home) Capital Gains Tax (CGT) exemption that elapsed before the May Federal election has now been reintroduced and passed by Parliament.
What this means that if an Australian working overseas sells their former home, they will pay tax on the entire gain. There will be no reduction for either:-
The time they lived in the home nor
The 50% CGT general discount (which is not available to non-residents since 2012).
And was non-residents tax on the first dollar at a tax rate of 32.5%, this could equate to a huge tax bill.
Yes, it doesn’t matter how long you lived in the property, a former resident will pay tax on the whole gain. And they will do so at comparatively high tax rates.
So, let’s take an example of Fred, a born and bred Australian who decides to sell their former Melbourne home of say 12 years and decides to buy a home in London where they have been for living for the last three years:-
Home bought for $750,000.
Home sold for $1,500,000.
Gain made of 750,000.
No reduction for the 12 years that it was their home.
No CGT 50% general discount as they had become a tax non-resident of Australia.
No six-year absence rule.
Will result in tax payable of $319,000!
There are two important carve-outs:-
Houses sold before July 2020 which were owned since May 9, 2017. Please note that CGT is based off contract dates, not settlement dates.
In the above scenario, there would be no tax payable by Fred if he returned to Melbourne and occupied the property as his home before selling it. This would still appear to be the case after a 20 year stay in London.
Full analysis of this new law is currently light on the ground . We do however invite any query you may have.
At MRS, we will spend today planning for your success.